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Thrift institution. Thrift institutions ?³ Savings associations ?³Savings
banks ?³Credit unions First created in the early ...
... Due to an attempt by a Thrift Institution to circumvent the prohibition of offering
chequing accounts in the state of Massachusetts, there is a possibility ...
... as: Ø Depository Institution: Accepts deposits from individual and makes loans as
for example Commercial Banks and Thrift Institution ? Federal Savings Banks ...
... May 21, 2002: Citigroup announced the purchase of Golden State Bancorp,
the second largest thrift institution in the US. The ...
... The episode marks the first time a financial institution has been brought down ... Under
thrift rules, CenTrust needs about $130 million of equity capital but ...
Submitted by shevchicken on March 27, 2006
Category: Business
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Thrift institutions
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„³ Savings associations
„³Savings banks
„³Credit unions
First created in the early 1800s in response to the commercial banks¡¦ failure to adequately serve the needs of individuals requiring borrowed funds to purchase homes.
Similar to commercial banks, they provide important residential mortgages and other lending services to households.
Insert fig 12.1
The saving associations made long term residential mortgages usually backed by the short-term deposits of small savers. For most of the post-World War II period the upward sloping yield curve meant that the rate of long-term mortgages exceeded the rates they paid on the short-term deposit liabilities.
During the October 1979 and October 1982 period, the Federal Reserve radically changed its monetary policy strategy by targeting bank reserves rather than interest rates. This led to a sudden and dramatic surge in interest rates, with rates on T-bills and bank certificates of deposits rising as high as 16 percent.
„³ Short-term rates and cost of funds increased
First, many saving associations faced negative interest spreads, as the short-term interest expense was too high
Second, they had to pay more competitive interest to retain existing customers to prevent disintermediation, which means withdrawal of deposits from depository institutions to be reinvested elsewhere such as the money market mutual funds
Actions taken by the saving associations:
1) On the liability side, savings association issued more market rate-sensitive liabilities such as money market deposit accounts to limit disintermediation and compete with mutual funds.
2) On the asset side, they were allowed to offer floating or adjustable-rate mortgages and, to a limited extent, expand into consumer real estate development and commercial lending.
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